The main function of any business is to transact products because the purpose of setting up any business is to earn profit by transacting products. Transaction of products involves purchase/buying and sale/selling of products. According to accounting, purchase means acquiring a product by giving something in return for earning profit or for business purposes and sale means giving a product by taking something in return for earning profit or for business purposes.
Sale is the main source of income for any business for which it transacts products. The process of sale or sale cannot be completed by a single person because two parties are required to sell any product, one who sells the product and the other who buys the product. The one who sells the product is called the seller and the one who buys the product is called the buyer.
Table of Contents
What is Sale?
Sale means giving a product by taking something from someone in return. According to accounting, a sale means taking something from someone and giving or selling the product for the purpose of earning profit or for trading purposes. When a product is sold, all rights are transferred to the buyer. In accounting, sales are shown in the trading account because with its help the gross profit or loss in the business is ascertained.
In accounting, sales are divided into two parts, a cash sale and a credit sale. When a person sells the product in cash it is called a cash sale and when a person sells the product on credit it is called a credit sale. The person who sells the product on credit is called a creditor and the person who buys the product on credit is called a debtor. The creditor shows the debtor in his balance sheet and the debtor shows the creditor in his balance sheet.
Features of Sale
Following are the features of sale/sales:
1. Income/Revenue:
Sale is an income for the business as the sale process brings money to the business and it is the main source of income in any business. Income from sales is not the final income as it has many deductions like expenses, losses, taxes, etc. Sale being a direct income, it is shown in the trading account.
2. Something in Return:
For a sale to be called a sale, there must be something in return for the product. If a business gives a product without taking anything in return, it will not be called a sale and cannot be shown as a sale in accounting, but if a business wants to give a product without taking anything in return, it can do so by showing it as a gift, discount, offer, etc.
3. Two Persons:
Two persons are required to complete the sale process as one person is required to sell the product and one person is required to buy the product. In this process, the person who sells the product is called the seller and the one who buys it is called the buyer. Note that for the person who sells the product, this process is called sale and for the person who buys the product, this process is called purchase.
4. Only Trading Products:
In accounting, not all sales are called sales because according to it only the sale of trading products is considered as sale such as the sale of raw materials, semi-finished goods, finished goods, etc. Note that selling of assets is not called sales, if there is profit or loss by selling assets then it is shown in the profit and loss account.
5. Helpful in Calculating Gross Profit or Loss:
Sales are an essential element to calculate the gross profit or loss in a business. Sales are shown in the trading account to calculate the gross profit or loss and if the debit side of the trading account is more than the credit side then it is called a loss and if the credit side is more than the debit side then it is called a profit.
6. Shown on the Trading Account:
Sales are shown in the trading account because it is a trading activity and since the nominal account rule applies to the trading account, it is shown on the credit side. Showing it in the trading account makes it easier to calculate gross profit or loss.
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QNA/FAQ
Q1. What is Sale?
Ans: Sale means giving a product by taking something from someone in return.
Q2. What is called who sells products?
Ans: Seller
Q3. Is sale an income?
Ans: Yes, sale is an income.
Q4. When is sale called in accounting?
Ans: In accounting, a sale is called when a product is sold for a trading transaction.
Q5. Are sales shown on the trading account?
Ans: Yes, sales are shown on trading account, and it is shown on the credit side.
Q6. Write the features of the sale.
Ans: Following are the features of sale:
1. Sale is an income/revenue.
2. Sale is called only when something is received in return.
3. Two persons are required to make a sale.
4. Sale is shown in the trading account.
5. Sale help in calculating gross profit or loss.
6. Sale is called only when there is a transaction of trading products.
7. Sale is the main source of income in business.
8. Sale is not the final income.
9. Sale does not include free products.
10. Sale cannot be done by only one person.
